SPONTANEOUS SUPPLY CHAINS

The ultimate supply chain is able to "pull"
parts and materials on-demand without delays or inventory. With such a spontaneous
supply chain, manufacturers can build unforecasted products to-order and
ship them immediately.

Spontaneous supply chains1 avoid the need to generate
forecasts, count inventory on-hand, generate purchase order inputs through MRP
systems, place purchase orders, wait for parts to arrive, expedite those that
are late, receive (and maybe inspect) materials, warehouse, group into kits for
scheduled production, and distribute within the plant.

Most supply chain management programs simply accept the
unnecessary proliferation of parts and materials, which greatly complicate
supply chain management. This unnecessary proliferation comes from three
sources: (1) too many older, low-volume products that have too many unusual
parts; (2) lack of part and material standardization, which is usually caused by
too many arbitrary decisions; and (3) too much outsourcing with too many
suppliers and too many "links in the chain."

The first step in establishing a spontaneous supply chain
is supply chain simplification. The forthcomingbook,
"Build-to-Order & Mass Customization," devotes four chapters to
this subject. These will be summarized below followed by an overview of how
spontaneous supply chains are established.

These practical methodologies are taught through Dr. Anderson's
in-house seminars and implemented through his
leading-edge consulting.

Use Product Line Rationalization to Reduce Part Variety by up to One Half

Product line rationalization eliminates or
outsources products and product variations that are problem prone, have low
sales, have excessive overhead demands, may really be losing money, and are
incompatible with new operational environments and corporate strategies, such as
lean production, build-to-order, and mass customization. Eliminating the most
unusual products will also eliminate the most unusual products from the supply
chain. In older companies with a lot of old "dead wood" products,
rationalizing them away could cut supply chain complexity by half or better!

Cutting Part Variety to a Few Percent with Standardization

Standardization of parts and raw materials is a very
effective way to substantially simplify supply chains. A good standardization
program can cut part variety down to a few percent of an original
proliferated list!2 This is because proliferation are caused by
arbitrary design decisions, simply because product designers do not have a list
of standard parts available. Most of the supply chain simplification will come
from new products designed around standard parts lists. Some reduction can be
realized on existing products by making "better than" substitutions.

Cutting Raw Material Variety to a Few Percent

Raw material supply chains can be simplified by ordering
very standard sizes and then have the in-house to cut-to-shape on-demand.
Standard sheets of metal can be cut programmably on laser cutters as they are
needed; similarly, standard bar stock and tubing can be cut programmably on CNC
lathes and machining centers. One of Dr. Anderson’s clients, the Hoffman
division of Pentair, reduced incoming raw material variety from 600 sheets to 6
standard sizes.

Removing Too Many "Links in the Chain" with Selective Integration

Some supply chains are overly complicated by too much
outsourcing. Unfortunately, this outsourcing has complicated the supply chain
with more "links in the chain," more transfers, and longer lead-times,
especially when there are sequential "tiers" through which materials
and parts must pass on the way to the assembler.

Outsourcing slows down supply chains if any of the
following conditions exist, which are quite common for outsourcing: (1) If
suppliers are too far away, then the shipping time would slow down any attempts
at rapid responsiveness and build-to-order. And even if the supplier could build
batch-size-of-one parts on-demand, those parts would have to be
"batched" into a daily or weekly shipment; (2) If outsourced parts are
made in batches, this would not only take too long, but it would also be
contrary to the inventory-less aspect of build-to-order; (3) If production has
to wait for the outsourcers to finish other jobs, then there will be delays.

Spontaneous Supply Chain; Pulling Without Forecasts or Inventory

Spontaneous supply chains can be established by:

C Arranging steady flows of very
standard parts, which would be used one way or another.

• Arrange for parts and materials to be
delivered "dock to line" and delivered directly to all points of use,
instead going to incoming inventory and then batched into "kits" for every
processing batch.

C Cut-to-shape raw material on-demand from the
longest version or standard sizes by programmable CNC equipment, such as laser
cutters and screw machines, by single axis programmable cut-off machines, or
from less automated tools based on on-line instructions.

C Build parts on-demand using spontaneous
build-to-order techniques. For parts that do not qualify for kanban,
suppliers themselves would need to implement spontaneous build-to-order so
that they could actually build on-demand to their customers’ pull
signals. This is the only way to supply mass-customized parts on-demand, which
may be needed for mass-customized products. Parts can be made on-demand
in-house or by nearby agile suppliers.

C Selective ordering for unusual parts for
products where response time is not important.

C Until the above techniques can be
implemented, it may be necessary to have strategic stockpiles of certain
materials. Stockpile ordering would have to be based on some kind of
forecasts, but if the material was standardized, then the forecast would be
easier to make for the aggregated demand for all consumption.

In a build-to-forecast environment, Purchasing’s role was to order parts
based on MRP data and expedite any parts shortages due to forecast errors,
inventory count errors, and late deliveries. In build-to-order and mass
customization environments, Purchasing’s new role is to: encourage
standardization of parts and raw materials for current products and help new
product development teams aggressively standardize new products; identify
standard raw materials and parts available from multiple sources; arrange
breadtruck replenishment; arrange steady flows of standard parts and raw
materials; nurture supplier/partner relationships with the focus on delivery;
establish kanban and pull signal arrangement with suppliers. Most of the
spontaneous part and material resupply will be automatic or manually triggered
by production personnel, not by MRP and purchasing.

Dr. Anderson is a California-based
consultant specializing in training and consulting on build-to-order, mass
customization, lean/flow production, design for manufacturability, and cost
reduction. He is the author of "Build-to-Order
& Mass Customization, The Ultimate Supply Chain Management and Lean
Manufacturing Strategy for Low-Cost On-Demand Production without Forecasts or
Inventory" (2008, 512 pages; CIM Press, 1-805-924-0200,
www.build-to-order-consulting.com/books.htm) and "Design
for Manufacturability & Concurrent Engineering;How to Design for
Low Cost, Design in High Quality, Design for Lean Manufacture, and Design
Quickly for Fast Production" (2008, 448 pages; CIM Press,
1-805-924-0200; www.design4manufacturability.com/books.htm). He can be
reached at (805) 924-0100 or andersondm@aol.com;
web-site: www.build-to-order-consulting.com.

2. Dr. Anderson used these standardization techniques at Intel’s Systems
Group to reduce an approved parts list from 20,000 parts down to a standard
parts list of 500 parts! For one category, 2,000 resistors and capacitors
reduced down to 35 standard values.